Shelbyville Restaurant Tax Expands To County

*Food delivered to the county is subject to the restaurant tax
*State Senator Paul Hornback dropped the ball with SB 166
*Our republican City Councilmen have lapses in conservative judgment

Back in February of 2014 our local newspaper wrote an opinion piece supporting a restaurant tax in both Simpsonville and Shelbyville. They stated, “[a] restaurant tax in Simpsonville and Shelbyville can make the county an infinitely more livable place, and having a tourism commission only can (sic) enhance the growth of that revenue pie by selling meals and drinks to out-of-towners…” (I have no idea what the back half of that sentence says either). “…That’s a concept we can savor.”

Don’t get me wrong, I appreciate the “savor” pun just as much as the next guy; however, when a tax is passed by a city legislative body directly taxing county residents, outside of the city’s jurisdictional bounds, you have taxation without representation, and there is nothing “punny” about that.

KRS 91A.400 states, “the city legislative body in an authorized city may levy an additional restaurant tax not to exceed three percent (3%) of the retail sales by all restaurants doing business in the city.” The state statute is clear, only city legislative bodies can implement a restaurant tax on businesses doing business in the city.” Good news right? County residents can avoid the tax if they just eat in the county… well not exactly.

Within days of the January 1st implementation of the “city” wide restaurant tax, my office was receiving emails and phone calls from county residents who were being taxed in the county by having pizza delivered to the steps of their front doors. But why? Read on.

Shelbyville’s restaurant tax is codified in Ordinance No. 2015-12-3(A) and states that “On and after January 1, 2016, every person, company, corporation or other like or similar persons, groups or organizations doing business as restaurants, cafes, fast food businesses or food vendors, or like or similar business where food is prepared for human consumption in the City of Shelbyville, Kentucky, shall pay monthly to the Tourism Commission a tax of three percent (3%) of the gross retail sales of all food and beverages……” (emphasis added).

To the “But why” question above, here’s why, because the ordinance states that where food is prepared for human consumption in the City of Shelbyville, then there will be a 3% tax on all the food and beverages sold by that restaurant. This means that even though your food is not prepared for consumption in the City of Shelbyville, if any food in that restaurant is prepared for consumption within the city limits, then all the gross sales are taxed and thus the restaurants tax all the food, regardless of where it is to be eaten.

Is this legal? Well, I’d have to bill you to tell you the answer to that question, but I will say this… under Kentucky sales tax laws, Kentucky is a destination based sales tax state. As such, when you purchase an item anywhere in the country, if it is delivered to your location in Kentucky, you pay the sales tax in the destination location, not where the sale originated. For those who fact check, see KRS 139.105(A)(2). One would then assume that if you have a pizza delivered to your house in the county, prepared by a Shelbyville business, you would only be subjected to county taxes, not city taxes, regardless of a city ordinance.

Here comes the bad news, so start sharpening your pitchforks accordingly. According to Kentucky Revised Statutes and the Kentucky Department of Revenue, the restaurant tax permitted by 91A.400 is not a sales tax. The destination-based rules of taxation do not apply, as the restaurant tax is a completely separate tax. Why would our most recent legislators draft a tax-based law that collects taxes in contravention to the legislative destination-based taxation intent of our former legislators?

The destination-based taxation rules under KRS were drafted in the early 2000’s, the restaurant tax law however, was drafted back in 1980… So, it’s the restaurant tax that is out of date. Some legislators would agree. The dates above would purport to suggest that the restaurant tax law is outdated with regard to Kentucky’s most recent taxation intent. As such, you would assume that any bill to amend the restaurant tax would address the taxation and ambiguity that infects KRS 91A.400.

Now that your pitchforks are sharp, pull out the torches. Our very own Republican State Senator Paul Hornback, recently proposed SB 166 which seeks to “[a]mend KRS 91A.400 (restaurant tax) to allow a restaurant tax to be levied on all cities (not just some, but all) and merged governments, (and) provide for a distribution of the tax between the tax jurisdiction and the relevant tourist and convention commission…”

Let it sink in… Yes, while our restaurant tax is plagued with ambiguity and poor judgment, so too is our own “conservative” State Senator. Here’s why; the amendment is designed to change which cities can be taxed, where before it was limited, now it will permit all cities to be taxed. Furthermore, and of most shocking note, it changes 91A.400 to incentivize cities to pass the restaurant tax by guaranteeing they will receive a portion of the funds. The current law creates a situation where the city is not guaranteed to receive a portion of the funds so the city has to negotiate with the local Tourism Commission to hand over a portion of the funds. If this negotiation fails, then the likelihood of a restaurant tax being passed in a local government is unlikely.

I would argue that “[n]ow more than ever the people are responsible for the character of their Congress. If that body be ignorant, reckless, and corrupt, it is because the people tolerate ignorance, recklessness, and corruption.” James Garfield, “A Century of Congress” published in Atlantic, July 1877. KRS 91A.400 is a dangerous piece of legislation, outdated in regards to our more recent taxing principles. Our local ordinance passed despite widespread opposition, is dripping in ambiguity, funds unaccountable departments, and is taxing individuals who are given zero opportunity to be represented by democracy.

The Sentinel News talked about a concept they could “savor”, and as a true conservative, Christian, and Shelbyville resident I would “savor” elected officials that claim to be Republicans, actually act in conformity therewith. Who am I speaking to specifically? Unfortunately, I am talking about people I have grown to become friends with, here are the Council members that support(ed) the restaurant tax:

Frank Page (REPUBLICAN)- supported it at 2%

Jon Swindler (REPUBLICAN)- supported it at 2%

Shane Suttor (democrat)

Donna Eaton (democrat) – Voted NO. Would only support a restaurant tax if she were able to lower residential property taxes first.